December 23, 2008
Easy Penny Stocks Tips You Can Use To Cash In!
Penny stocks have been around since the 19th century, and they’ve also been a big part of the American investment system ever since they developed. This era is actually the one that gave these stocks their names, as modern penny stocks cost far more than a penny. They average between ten cents and five dollars apiece in modern money. Why don’t we take a look at some of the risks you’ll encounter when dealing in penny stocks, then ways they can help you turn a profit.
Penny stocks are share offerings made to investors by companies that are just too small or new to have a listing with the major stock exchanges. They have significant growth potential, and the initial investment can be quite small, but you run the risk of encountering a pump and dump scheme. Like anything else dealing in the OTC (over the counter) market, the buyer should beware.
Choosing penny stocks in a reasonable fashion means having the business model of the company selling them independently appraised. This is like buying shares in any other company that’s being publicly traded. It’s important to understand the company’s business model, what they’re doing, who’s competing with them, what they make and what products are being offered.
One of the most appealing things about penny stocks is that the majority of businesses offering them are quite simply put together. One typical type is that of a mining company, which will only be profitable when the price of the material it mines reaches a certain level. There are also some oil exploration stocks which use this kind of valuation.
Penny stocks are rated as a high risk vehicle by the Securities and Exchange Commission. Some of the risks involved include incomplete or indirect reporting of finances, fraud, and limited liquidity. People playing using a day trading strategy, sudden demand on penny stocks can create wide ranging volatility, which also makes it hard to short sell them.
The financial reporting guidelines on penny stocks are actually pretty loose. Unlike the national exchanges, not much is required of companies that list this way – in fact, sometimes these stocks will just de list for a few days! In the investment type called Pink Sheets, penny stocks have nearly no regulatory requirements at all, including few to no minimum accounting standards or reporting guidelines.
Because there are no generally accepted standards or standardization for penny stocks, they’re an area that’s extremely vulnerable to fraud and manipulation. People can pose as independent observers, then run up the price of penny stocks. All they have to do then is de list it, leaving buyer with nothing in what’s classically called a pump and dump scheme.
Now, that doesn’t mean you should be scared off of these stocks entirely. There are lots of real, legitimate start up companies, and they have to get going somewhere. Anyone who can pick a winner will get a handsome reward.
If you’re able to spot a company with lots of promise, you could get an enormous payday. Even if you lose four out of five of your picks, the single winner you get will give you enough to forget about the other losses.
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